U.S. Economic Downturn Has Made Many States Thesis

U.S. economic downturn has made many states in the United States to implement strategies to boost economic developments of their respective states using different economic incentives to attract investors. Recognizing the needs to be competitive nationally and globally, New Jersey legislative house has sponsored the "New Jersey Economic Opportunity Act II of 2013" with the aim of fostering an economic development in the state. The goal of Economic Opportunity Act is to improve the panoply of economic incentives to encourage companies in the United States and outside the United States to invest in the state to boost employment opportunities and revenues of the state.

Several states in the United States have also implemented similar programs to enhance economic growth. Example of these states includes Wisconsin, North Carolina, Missouri and Mississippi. Missouri used the BUILD (Business Use Incentives for Large-scale Development) to stimulate 1,410 permanent jobs in 2011 fiscal year. Few years after the introduction of the program, the company such as IBM and Express Scripts implemented business plan to create more jobs in the states to derive benefits from the incentives.

Moreover, the program attempts to strengthening job creations as well as enhancing New Jersey's competitive advantages in the global economy. Under the program, the New Jersey introduces Grow NJ (Grow New Jersey Assistance Program) and ERG (Economic Redevelopment and Growth Program. The goal of Grow NJ is to stimulate job opportunities by using tax incentive program. 1 Additionally, the Grow NJ is used to allocate base tax credits ranging between $500 and $5,000 to attract more companies into the states. The New Jersey will also use ERG to implement tax incentive program by allocating tax credits for residential projects to achieve the state's developmental goals.

Thus, both Grow NJ and ERG are to stimulate jobs and enhance economic growth. However, New Jersey may still face constraints with the program's implementation because the state may face criticisms from the public that public officials are using the state's funds for firms' growth.

Section I: Introduction & Methodology

Faced with harsh economic and high unemployment rates, many states introduced tax incentives to stimulate economic growths. Michigan introduced film tax incentives in 2008 to promote the film production in the state. Nearly 60% of tax credits was offered to film producing firms depending on the community the film was shot2. Since the program has been introduced in 2008, more than 100 films have been produced in the state. Some states also use property tax exemptions to enhance investment growth and create jobs. In 2009, Ohio launched the real personal or property tax incentives in exchange of capital investments. Since the programs have been introduced in 2009, Ohio has received projects that worth $440 million.3.

Some states also introduced a reduction of taxable income thereby reducing tax bills of participating entities. Many states attract businesses using sales tax exemption on the overhead costs thereby attracting business investments to their states. For example,

Missouri is currently offering varieties of economic tax incentives to induce economic growth and boosting employment opportunities in the state. 4. Missouri introduced BUILD (Business Use Incentives for Large-scale Development) to create 1,410 permanent jobs by 2011 fiscal year. Following the launching of BUILD, the IBM Service Center has committed to employ several hundred workers to meet the incentives offered by the state and receive the incentive packages. The employment records of IBM have increased at Columbia facility from 143 to 349. Moreover, the company hired new 800 technical personnel in 2012. 5.

Despite the convincing arguments presented by the literatures concerning the economic incentives to promote the economic growths of participating states, Chirink, & Wilson provide a contrasting argument by pointing out that some states do not enjoy economic benefits from the economic incentives6 . For example, Enterprise Zone Program launched in California to create employment opportunities for economically disadvantaged workers does not have impact on job creation. Hagen also argues that economic development incentive programs may not be cost effective for states because firms generally invest in states that have abundant skilled workforce, cheap suppliers and quality infrastructures. 7

Following the analysis of the literatures, the New Jersey could still record economic growth and boost employment opportunity with the Economic Opportunity Act. Analysis of the literatures has shown that economic incentive programs are cost-effective, which assist states to reach their goals.Missouri with its tax incentive program is able to increase the net tax revenues, new capital investment, job opportunities leading to the increase in the overall welfare of the state's residents. As being revealed in Appendix 1, New Mexico, Louisiana, and Hawaii enjoy economic growth from the economic incentives programs few years after launching of the programs. Thus, New Jersey will boost the state's economic growth following the implementation of the program.

History of Tax Incentive Financing & Proposed Model of Analysis

Buss, 9 argue that states have started offering tax related incentives to businesses since the British colonization of the United States and the number of incentives has increased since that time. During colonial period, colonial used tax related incentives to attract skilled artisans and entrepreneurs to colonial towns. For example, New Jersey offered Alexander Hamilton tax incentives in 1791 to attract entrepreneurs to the state. Moreover, some states financed infrastructures and offered capital incentives to private industries as early as 1800. By 1844, Pennsylvania invested over $100 million on 150 corporations. Similarly, Philadelphia and Pittsburgh engaged in an intense rivalry making the states to engage in substantial investments in railroads, banks, roads and bridges.10. Similarly, the Mississippi introduced tax-exempt bond program to attract entrepreneurs and industry to the state. In 1949, "Maine authorized the first statewide business development corporation. By 1959, 21 states had similar corporations." 11. In 1955, New Hampshire granted loans to industries through industrial finance authority, and by 1963, nineteen more states had created similar authorities. Between 1956 and 1963, 17 states introduced tax concession. Following the unemployment crises between 1970s, and 1980s, states engaged in economic growth incentive wars and in 1990s, several states competed intensely among one another using tax incentive programs.12. Between 1980s and 1990s, states in the United States began to replicate one another programs by offering different variations of tax incentive programs.13.

As being revealed in Appendix 2, half of the states in the United States use 15 most common economic tax incentives to attract investments in their respective states between 1986 and 1996. In 1996, 12 of these incentives were used by two third of the states.14.

By 2000s, different states introduce various tax credit programs to attract local and international investors. Delaware introduced tax credit programs in 2000 to attract large projects into the state. Eight years after the adoption of the programs, Delaware has recorded a remarkable success because the state has recorded a 75% increase in the annual activity.

Section III: Economic Opportunity Act of 2013

New Jersey Economic Opportunity 2013 is a revolutionary economic development program aimed to enhance the state's economic growth. On September 18, 2013, the New Jersey legislature passed Economic Opportunity Act into law. The Act phases out three economic development programs while expanding two of the programs, and the law places more emphasis on job creation and job retention. Theoretically, the job creation tax incentive exemption program is aimed to increase overall employment opportunity in New Jersey. The growth of employment opportunity will act as a catalyst for economic growth. Moreover, the economic development will lead to the consumption of vacant office space and stimulate addition growth through multiplier effects.

The NJ Economic Opportunity Act consists of four basic main components:

(1) Phase-out of former three existing programs that include "Business Retention and Relocation Assistance Grant Program" (BRRAG), Urban Transit Hub Tax Credit (UTHTC), and Business Employment Incentive Program (BEIP).

(2) Provision of substantial expansion of tax credit program using the Grow NJ to finance Mega Projects and projects located at the Garden State Growth Zone and Urban Transit Hubs.

(3) Allocation of $600 million worth of tax credits under the RG program for qualified residential projects targeted to develop areas such as eight South Jersey counties, and Urban Transit Hubs.

(4) "Authorization to create Garden State Growth Zone Development Entities." 16.

Under the Economic Opportunity Act, the New Jersey set aside the initial $200 million of UTHTC program to finance Grow NJ. The purpose of UTHTC is to:

provide Tax credit program,

Encourage capital investment in the eligible municipalities.

There are only nine eligible municipalities qualified for the programs and they are as follows:

Camden,

East Orange,

Elizabeth,

Hoboken,

Jersey City,

Newark,

New Brunswick,

Paterson and Trenton17.

However, the government phased out the UTHTC program and created Grow NJ to stimulate.....